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| The part of a financial plan that focuses on protecting your accumulated assets from the potentially catastrophic costs that certain life events can cause |
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| exposure to events or perils that can cause a financial loss |
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| things that could potentially happen to cause a catastrophic event |
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| represents decisions about whether and how to protect against risk, there are four ways to avoid this: avoidance, reduce, accept, and insure. |
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| Avoid method of risk management |
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Definition
| don't own property. Avoid poperty damage. subject to liability |
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| have less, smaller items and purchases |
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| take responsibly. make it so that you can afford the risks and consequences |
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| weighing the costs and benefits. cost of obtaining insurance= premium-this is paid every year. Protect assets. cant insure against all risks. |
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| the way insurance companies determine how your insurance will cost. more events instances of fuck up you have more it will cost |
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| person who manages insurance |
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| contract of the insurance- terms and conditions of the insurance |
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| letter of last instruction |
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| its how you disperse your inheritance, usually formed between ages 40-60 |
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| legal request for how your money should be split when you die. |
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| person who died--their will |
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| you can make specific requests, however you choose minors cannot inherit or own property, for them you name aguardian |
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| probate declares a will valid and ensures the orderly distribution of assets |
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| legal docuentation in which one person transfers assets to another who manages them for designated beneficiaries |
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| law of the state. If you don't have a will when you die the law of the state dictates who gets teh moneyz |
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| 3,000,000 is how much you need to have to be taxed for having an estate when you die. Value is equal to the value of all assets minus liabilities and minus the funeral andadministrative expenses |
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| unilimited marital extension |
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Definition
| if someone dies their spouse gets their estate and cannot be txed. estimate estate taxes based on your net worth, so you can minimize the tax liability on your death. |
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| act of planning for how your wealth will be allocated on or before you die |
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| a legal document granting a person the power to make specific decisions for you in the event that you are incapable |
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| Four steps for financial independance |
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Definition
| 1. start ASAP 2. Need to invest in things that outperform inflation (stocks and real estate). 3. Minimize taxes along the way. 4. Dont be stupid. |
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| you pay 10 years of work you get SS, age req is 66 |
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| an employer sponsored retirement plan that guarantees you a specific amount of income when you retire based on your salary and years of employement (pension) |
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| Defined- contribution plan |
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Definition
| an employer sponsored retirement plan that specifies gudelines under which you and or your employer can contribute to your retirement account and that allows you to invest the fnds as you wish (401k) (403b)(Roth 401k) |
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| Defined contribution plan that allows employees to contribute a max of 14k (18k if they >50yo) per year on a pre tax basis |
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| plans for NPO's. allows employees of npo's to invest up to 15k of their income on a tax deferred basis |
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| plans for NPO's. allows employees of npo's to invest up to 15k of their income on a tax deferred basis |
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Definition
| plans for NPO's. allows employees of npo's to invest up to 15k of their income on a tax deferred basis |
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Definition
| plans for NPO's. allows employees of npo's to invest up to 15k of their income on a tax deferred basis |
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Definition
| an alternative plan to the 401k available to people emplyed by participating in companies |
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| an account you can set up anywhere that can hold all diff amounts of money. Can inest 4k a year. In come on your invest not taxed till you take it out. |
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| Simplified employee plan- defined contribution plan commonly offered by firms with 1 to 10 people or self employed peeps |
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| enables individuals under specific income limits to invest 4k a year, untaxed, u can convert a normal IRA to this |
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Traditonal: shelters u from taxes till u take money out, can pay taxes on your own income before you contribute.
Roth: IRA contributions grow over time |
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Definition
| defined benefit. Once u work for someone for a long time they pay u monthly when u retire, also will pay spouse if u die |
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| romantic lending approach |
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Definition
| couple throws all their money into one joint account |
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| couple each has their own account, pay things by dividing between the two |
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| "yours mine ours" each partner has a sep account, then they share one account to pay bills etc.. |
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| Rules for mutual investing |
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Definition
| 1. understand what the fund invests and its investment approach before you invest. Before you invest in a fund, determine its absolute and relative risk. 3. Diversify your mutual fund protfolio. 4 Broadly diversified funds, like a large cap and a small cap are better for beginning investors than narrower, more focused funds such as sector funds. 5. costs matter, so try to keep an internal fund cost as low as possible. Avoid load funds have commission to ppl who anage.6. Remember tax efficience and whether or not you wil be investing in a taxdeferred retirement plan. 7. understand how to evaluate fund performance. 8. Choose a group of funds that fits your strategy and is small enough so you can easily monitor your peformance. 9. Forget about timing of the market. |
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| give you a form of ownership of a company |
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| increase in value of stock |
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| companies that pay money to their shareholders |
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| the amount of money you make off of capital gains and dividends |
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Definition
companies and government borrow money and issue bonds, 3 characteristics.
Principal: amount of bond
Interest: % accrued over the years
Maturity: how long the ond is for |
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| long term debt securities issued by the us treasury |
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| long term debt securities issued by the state and local government agencies |
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| long term debt securities issued by federal agencies |
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| long term debt securities issued by large firms |
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| number, basic amount of money |
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Definition
| inflation adjusted rate of return |
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Definition
| measure of volatility/risk |
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Definition
| measures the performance of stock market (dow jones made up of the 30 major us companies) Standard and Poor, S&P, top 500 biggest corps |
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Definition
| if a company has less than 1billion, small cap. over 1 billion, medium cap, more than 5 bill, large cap |
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Definition
| company could go bankrupt, market could change, govt could influence, inflation |
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| default risk, interest rate could pown you, inflation, corporation could call back higher interest rate bonds |
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Definition
| look at tech devs, competition in category |
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| technical analysis of stocsk |
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Definition
| pattern of stock movements |
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| large company dividend paying stocks- most effective way for beginner investors to make money. Periodic payments to stock holders. |
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Definition
| mutual funds that focus on firms that pay a high level of dividends |
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| small capitalization funds |
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Definition
| mutual funds that focus on firms that are relatively small |
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| mid-size capitalization funds |
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Definition
| mutual funds that focus on medium size firms |
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| US government issued bonds |
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Definition
| treasury bonds are the safest bonds |
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Definition
| Gennie Mae. Buys mortgages, bonds are backed by us government |
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Definition
| funds that sell shares to individuals and invest the proceeds in stocks |
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Definition
| funds that sell shares toindividuals and invest the proceeds in bonds |
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Definition
| funds that sell shares directly to investors and repurchase those shares whenever investors wish to sell them |
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Definition
| group of seperately managed open-end mutual funds held by one investment company |
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Definition
| mutual fund publishes this document once a year--> written by attorneys |
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| 4 benefits to mutual funds |
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Definition
| instant diversification. Convenience. Professional management. Relatively low cost. |
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| capital appreciation funds |
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Definition
| mutual funds that focus on stocks that are expected to grow at a very high rate |
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Definition
| mutual funds that focus on stocks that have potential for above average growth |
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Term
| umbrella personal liability policy |
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Definition
| a supplement to auto and homeowners insurance that provides additional personal liability coverage |
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| 1st component of a Personal Finance Plan |
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Definition
| Budgeting and tax planning (managing your income) |
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| Budgeting and tax planning |
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Definition
| process of forecasting future expenses and savings. FIRST GOAL IS TO HAVE AN EMERGENCY FUND |
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| Personal cash flow statement |
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Definition
| financial statement that measures a person's cash inflows and outflows |
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Definition
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| value of what you own minus the value of what you owe |
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| 2nd component of a Personal Finance Plan |
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| access to funds to cover any short-term cash deficiencies |
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Definition
| decisions regarding how much credit to obtain to support your spending and which sources of credit to use. |
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Definition
| decisions regarding how much money to retain in liquid form and how to allocate the funds among short-term investments |
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| 3rd step in Personal Finance Plan |
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Definition
| Financing Large purchases |
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| 4th step in a Personal finance plan |
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Definition
protections of assets and income
INSURANCE |
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Definition
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| 6th component of a personal finance plan |
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Definition
Plan for retirement
save enough money to be independent when your old
plan for your estate (will-money after death) |
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| Steps to develop your financial plan |
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Definition
1. Establish financial goals
2. Consider your current financial position
3. Identify and evaluate alternative plans that could achieve your goals
4. Select and implement the best plan for achieving goals
5. Evaluate your financial plan
6. Revise your financial plan |
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Definition
cash flow statement based on forecasted cash flows
cash inflows-cash outflows= budget |
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Definition
| assets that can be easily sold without loss in value |
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Definition
| items normally owned in a household: car, furniture, home |
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Definition
| LR= liquid assets/ current total liabilities |
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Definition
| debt to asset ratio= total liabilities/total assets |
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Definition
72/x= # of years for investment to double
x= interest rate (ex 10% interest would be x=10) |
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| Federal Insurance Contributions Act FICA |
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Definition
| tax goes to fund social security and medicare |
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Term
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Definition
| all reportable income from any source: salary, interest income, divident income, and capital gains received during the tax year |
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| Income earned when an asset is sold at a higher price than was paid for the asset |
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| Adjusts gross income for contributions to IRAs, alimony payments, interest paid on student loans, and other special circumstances |
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Definition
Interest expense
State and local income
Real estate tax
medical expenses
charitable gifts |
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Term
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Definition
| you can become exempt for a person filing a tax return, spouse, and each dependent |
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Definition
| how much you take after all the deductions |
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Definition
Commercial banks
Thrift institutions
credit unions- non profit |
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Definition
| financial institutions that accept deposits and use the funds to provide business and personal loans |
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Definition
| financial institutions that accept deposits and provide mortgage and personal loans to individual |
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Definition
| depository institutions that serve members of a common affiliation |
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Definition
money yo ucan't touch until a certain time that earns interest at the same time
different depositary institutions may offer different CD rates
early withdrawal often results in a penalty payment
depositors money is locked in for a specific amount of time |
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| Four Elements of Money Management |
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Definition
1. Personal cash flow/budget/monthly plan
2. how you divide your pay when you get it
3. emergency fund
4. use of a credit card |
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Definition
| short term credit (30 days or less) such as a department store credit for consumers |
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Definition
| credit previded for specific purchases, interest on the amount borrowed. Appliances etc.. |
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Definition
| credit cards. Credit provided up to a max amount, interest is charged each month on the remaining balance |
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Definition
| public places where ID thiefs stand and watch you use your ccard |
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Definition
| person goes through trash for papers with your info |
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| ID thief pretends to be an employee of a company that you know. |
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| economic concept that measures the best alternative use of time, money, or some other resource |
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Definition
| An agreement by a bank to lend a specific amount to a borrower, and to allow that amount to be borrowed again once it has been repaid. |
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Definition
| negotiable order of withdrawal." It is a transaction account and, thus, is subject to the highest reserve requirements imposed by Regulation D. NOW accounts earn interest and account holders can write as many checks as they want on the account. |
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Definition
| A money market account is a deposit account with a relatively high rate of interest, and short notice (or no notice) required for withdrawals. ... |
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Term
| withholding tax payment method |
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Definition
| An amount of an employee's income that an employer sends directly to the federal, state, or local tax authority as partial payment of that individual's tax liability for the year. When a person starts a new job, he/she is required to fill out a W-4 form on which he/she can indicate his/her filing status and the number of allowances he/she is claiming. also called withholding. |
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Definition
| Consumer or business loan (such as for a vehicle, vacation, or equipment) in which the principal and interest are repaid in equal installments at fixed intervals (usually every month). These loans are commonly secured by the item purchased or by the personal property (excluding real estate) of the borrower. |
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| Carrying a balance for a few months ever so often does what? |
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Definition
| helps you raise your credit score by and demonstrating character |
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Term
| Borrowers credit repayment history does what with your FICO score |
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Definition
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| how long is the statute of limitations the IRS uses for mistakes on personal income tax returns? |
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Definition
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| APR method of calculating interest on loans |
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Definition
| Standardized method of quoting the effective interest rate (actual cost of credit) on consumer loans, specially where interest is computed on monthly or other non-annual basis. An APR includes all fees (except penalties), and takes into account the continual reduction of principal amount through amortization. See also add on loan. |
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| simple interest method of calculating interest on loans |
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Definition
| Interest computed only on the principal and (unlike compound interest) not on principal plus interest earned or incurred in the previous period(s). Simple interest is used commonly in variable rate consumer lending and in mortgage loans where a borrower pays interest only on funds used. Formula: Principal amount x Annual interest rate x Number of years. |
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| add-on interest method of calculating interest |
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Definition
| interest charged in an add-on loan |
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Term
| Teachers info about how NOT to use credit cards |
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Definition
| miss payments rather than using your emergency fund |
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Term
| home equity line of credit |
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Definition
| revolving credit loan that uses the difference between the market value (MV) of the borrowers home and hte outstanding balance on the mortgage (MORT) used to purchase a home. |
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Definition
| Gradual repayment of a loan in equal (or nearly equal) installments which include portions of interest and principal amounts. See also level payment amortization. |
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Definition
| form of ownership where property owners share ownership of a sructure and groudns while owning an apartment individually |
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| home equity line of credit |
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Definition
| the value of a house - the balance stil owed on the mortgage |
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Definition
| your ideal month spending wise. a good way to use your personal cash flow information |
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Definition
| monitors and rates your use of credit |
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Definition
| generally done with amortized payment schedules |
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| most common time period for a home mortgage |
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Definition
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Definition
| the mathematical principle on which all modern insurance is based |
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Definition
| the way insurance companies evaluate applicants for insurance policies |
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Definition
| mold lightning fire explosions hail vandalism |
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Definition
| an insurance policy that adds to the liability coverage of both automobile and homeowners insurance |
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Term
| most people in the us who have health insurance purchase it |
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Definition
| on a group basis, sponsored by their employer but purchased from an insurer |
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Term
| preferred providers orgnization |
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Definition
| a form f health insurance where you pick from a list o private doctors who follow the insurance companies guidelines |
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Definition
| cheapest type of life insurance |
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Term
| cash value life insurance |
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Definition
| whole life, variable life, universal life |
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Term
| how do you calc the amount of life insurance u need |
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Definition
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Definition
| total value of a companys stock at a given time |
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Definition
| most important strategy to drop risk a comp might go bankrupt |
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Definition
| issues an unlimited number of shares to investors who invest directly |
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Definition
| a mutual fund that is passvely managed and seeks to duplicate the performance ofsome measure of a market segments performance |
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Definition
| mutual fund that trades like a stock |
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Term
| three legged stool of sources of retirement income |
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Definition
| pension income, income from personal saving, social security income |
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Term
| strategy to participate in an employer sponsored retirement plan |
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Definition
| maximize your contribution |
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Definition
| person the creator of a will chooses to carry out his wishes after his death |
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Definition
| a trust that comes about after you die and controls hw your money gets divied out |
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Definition
| a trust that is often used to maximize hte amnt of money that can pass to heirs under the current estate tax laws |
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Definition
| a document that allows your assets to be distributed quickly after your death and avoid oing through probates |
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| letter of last instruction |
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Definition
| an informal document that gives heirs the info they need to deal w decedents affairs |
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